Thai Beverage - Still Gestating SABECO Purchase; 1Q18 Remains Soft

Spirit and beer volumes were still soft as the Thai economy had not really shaken off the effects of the mourning period.

Management guided that it would incorporate SABECO's financials from 2QFY9/18 onwards; but the effective economic stake is still undergoing auditor evaluations.

We were surprised that the loan repayment from Vietnam Beverage for the SABECO acquisition may spill beyond the guided 12-month repayment period.

Maintain HOLD with a lower target price. The company will hold its Annual Information Meeting for Shareholders (AIM) on 21 Feb 2018.

Thb Higher-than-expected selling expenses in 1QFY18

While we had expected a softer 1QFY9/18 on the back of de-stocking exercises by sales agents (4QFY9/17 volumes and revenues were higher due to sales agents stocking ahead of the excise tax implementation in Sep CY17); core net profit of THB5.3bn was slightly below expectations due to higher-than-expected selling expenses of THB4.9bn (vs. our forecast of THB4.6bn/quarter).

Core net profit excludes one-off SABECO costs amounting to THB2.4bn.

Alcohol volumes could remain slow in 2QFY9/18

1QFY9/18 spirit and beer volumes of 352m litres were down 8% q-o-q from 383m litres in 4QFY9/17 due to the above-mentioned de-stocking exercises; but were also 3.6% lower y-o-y (1QFY9/17: 365m litres), largely due to beer volumes falling 5.9% due to sluggish demand post the mourning period.

Management guides that demand for spirits and beer is still soft, which suggests that volume growth could be flat in 2QFY9/18.

Still gestating SABECO purchase; impact fully seen from 2QFY9/18

ThaiBev guided that SABECO’s profitability and cashflow will only be incorporated from 2QFY9/18 onwards as the deal was completed close to the end of Dec 17. This is despite assets and liabilities already being included in its balance sheet.

We understand that SABECO’s earnings are likely to be consolidated; however the effective economic stake is still being evaluated by its auditors. We previously assumed that ThaiBev has an effective 26.3% stake in SABECO.

Repayment of Vietnam Beverage’s loans could spill beyond CY18

ThaiBev guided that the repayment of loans extended to Vietnam Beverage could match the two-year bridging loan it had obtained to fund the SABECO deal. This is a surprise to us given that it previously guided that such loans would be repayable within 12 months.

Maintain HOLD with a lower Target Price of S$0.98

We cut FY18-20F EPS by 0.6-1.7% as we factor in higher selling expenses. Uncertainties relating to the SABECO acquisition and elevated balance sheet risks could continue to cap investor sentiment on the stock.

We maintain our HOLD call, with a lower SOP-based Target Price of S$0.98 (from S$1.00) as we revalue ThaiBev’s stake in SABECO post the latter’s share price decline of c.37% to VND234k/share currently (vs. ThaiBev’s acquisition price of VND320k/share).

Stock analysis research and articles on this site are for the purpose of information sharing and do not serve as recommendation of any transactions. You will need to make your own independent judgment regarding the analysis. Source of the report is credited at the end of article whenever reference is made.